Peter Brimelow: Gold gearing up?

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By Peter Brimelow
MarketWatch.com
Thursday, August 19, 2010

http://www.marketwatch.com/story/rapturous-gold-bugs-see-new-highs-ahead...

NEW YORK -- Is gold gearing up for new highs? Rapturous radical bugs say yes.

Wednesday may prove to have been a very important day in gold. Gold broke early in the day, but then metal reversed, closing higher than Tuesday's high. For technicians, this amounts to an outside reversal.

The Wednesday close put gold back to the level of June 30 and some $73 higher than the July 27 low.

Back then, almost the only cheerful group was what I have call the "radical gold bugs" mustered around Bill Murphy's banner at LeMetropole Cafe.

... Dispatch continues below ...



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I quoted Murphy saying: "As long as the physical market holds up, it is only a matter of time before gold and silver go back up and make new highs."

Murphy's prediction seems to be happening.

On Wednesday night, Richard Russell commented:

"Strange, the clearest pattern I see in any item is in gold. ... Below, gold is a picture-perfect head-and-shoulders bottoming formation. Over the last few days gold has broken out to the upside. The breakout is capable of taking gold to the previous record highs."

What is particularly interesting is that, for once, the gold shares agree.

Two weeks ago the Chartist Martin Pring stipulated in his weekly Infomovie Report that although recent gold action "hints at a possible rally ... until SPDR Gold Trust ETF (GLD) and the Market Vectors Gold Miners ETF (GDX) can take out previous minor highs at $120 and $52 I am remaining cautious."

But on Wednesday both instruments achieved these levels. This is an important matter for Pring, who has traditionally laid great weight on the forecasting capabilities of gold shares.

Gold bugs are also taking heart from other factors. They have learned to rely on a powerful upswing in physical demand for gold starting in late August and running through the end of the year.

This is because of the wedding season in India, by far the world's largest gold importer. The research department of Canada's CIBC has recently pointed out that gold has risen in September in 16 of the last 20 years. Holding for the whole of the last four months of the year has provided double the returns of September alone.

LeMetropole Cafe, which pays close attention to regional gold markets, has indeed been reporting signs of stronger buying out of India, Turkey, and even Iran. This is expected to more than offset weaker bids from the Far East -- Vietnam, China, and Japan.

This evening's weekly update from the Aden Report is on board for the ride:

"With each passing day, gold is reinforcing that a renewed rise is under way. This is incredibly bullish because it's saying that the six week 8% decline from June 18 to July 26 is all we are going to get. ...

"If gold, basis December, now stays above $1,213, the D decline will be over and the rise could then easily test the June highs. But if gold closes at a new record high above $1,258.30, it will show super strength due to several reasons. A mild D decline, followed by a record 'A' rise high, at a time when a second phase of the bull market is under way, essentially means an explosive rise could be at hand. Gold shares are backing this up as the HUI gold share index closed at a seven week high today."

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